Saturday, January 08, 2011

The history of Mexico's Opportunidades

Earlier this week, an op-ed piece in the New York Times spelled out the reasons why "conditional cash transfers" are so successful in Mexico and Brazil. This type of program gives money to the poor on the condition that they meet requirements such as keeping their children in school, or getting regular medical checkups. As a follow-up to the article, writer Tina Rosenberg addressed some of the comments she received by giving us this background on how Mexico's Opportunidades program was set up.

Mexico was able to change this because of the Tequila Crisis — the 1994 crash of the peso, when the economy contracted by six percent. A third of all Mexicans were living in extreme poverty, which meant their incomes did not cover even food alone. The government of Ernesto Zedillo knew that the food subsidy programs would do little to help. So it decided to find something better. Santiago Levy, then an undersecretary in the finance ministry, reasoned that subsidies were just an inefficient way to give the poor money — so why not give them money? At the time, this was considered a crazy idea. No other country did it.

Levy reasoned that the program would be much more effective if the money could be used as leverage. He set up a pilot project in a faraway state in secret — so as not to attract the attention of special interest groups. It worked. The pilot showed that it was logistically feasible to carry out the program; that families preferred cash over subsidies; that families did go to the doctor, and that, despite what skeptical Mexican cabinet members had warned, men did not beat up their wives, take the money and get drunk. Giving out cash proved to be hugely more efficient than the old food subsidies. Mexico found it could help many times more people with the same money it was spending on the old programs. One reason is that Opportunidades is careful to enroll only the people who need it most.

The program uses census data to find the poorest rural areas and urban blocks, and within those areas, gives out questionnaires about people’s income and possessions. What do you make? Do you have a dirt or cement floor? Do you own a hot-water heater? The homes of those who qualify are visited to verify their answers. Families must be recertified every three years, and according to Salvador Escobedo, the current director, about 10 percent leave each year — either because they have failed to complete their responsibilities, or they graduate and are no longer extremely poor. Mexico checks on whether families are keeping up with their responsibilities by having schools and clinics keep computerized track of attendance.

What about corruption in a country like Mexico? People will be corrupt when they have the chance. Amy from Los Angeles reports that in the Mexico City slum where she lived, people had to march with and vote for the locally-governing political party in order to get Oportunidades money. But the program aims to minimize the possibilities for patronage and corruption.

When I went back to Mexico, where I used to live, to report on Oportunidades in 2008, I was at first puzzled by the ubiquity of signs announcing “Oportunidades is a program of the federal government.” But there was a good reason for these signs — they were telling people that they shouldn’t give in to pressure from local leaders in order to get their payments. All program criteria are national – no decisions get made on the local level. If Amy is right, some local governments trick their people into thinking that they have influence. But it’s not many.

Oportunidades has no shops. No goods move, only money — and much of that electronically. The money is handled by banks; staff do not touch it. There is very little infrastructure — 95 percent of the program’s budget goes directly to beneficiaries. They get their cash, then patronize local businesses that sell food, clothing or school supplies. (The program is hugely popular with small businesses in poor towns. This is one way Oportunidades is helping even people who are not its beneficiaries, and one response to the complaint that simply redistributing money can’t possibly do anything.)